How Does a Roth IRA Compound Interest?

How your Roth IRA increases in value depends on how you invest your nest egg.
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There isn't a universal answer to how Roth IRAs compound interest because a Roth IRA isn't a specific type of investment. Instead, Roth IRAs are a special type of retirement savings account that allows money to grow tax-free and be taken out tax-free at retirement. You can invest the money held in your Roth IRA in a range of options. The ones you use will determine how the money grows.

Roth IRA Investment Options

Roth IRAs are typically invested in stocks and mutual funds, which grow or decline in value based on how well the investments perform. A good earnings report could bump up the value of your Roth IRA, while a poor report could cause a decline in value. On the other hand, you can hold money in your Roth IRA in deposit accounts, like certificates of deposit or even a savings account, in which case the interest compounds just like it would if the deposit account were not in your Roth IRA.